Getting Quoted on OTCQX International | an Overview for Non-US Companies

White Paper Getting Quoted on OTCQX International | An Overview for Non-US Companies

Over the last few years, OTCQX International, a quotation platform operated by OTC Markets Group Inc., has established significant traction in the marketplace. There are now over 300 foreign issuers with securities quoted on OTCQX International, ranging from earlier stage companies to well-known large cap issuers.

OTCQX International is attractive to many foreign significantly higher quantitative standards for initial issuers because it provides them with a cost- quotation and on an ongoing basis. Otherwise, the effective way to expand their access to U.S. investors initial and ongoing requirements applicable to both and increase liquidity. OTCQX International can tiers are the same. be an upgrade for a foreign issuer that already is quoted in the United States on a “bulletin board” To be admitted to OTCQX International, an issuer quotation system, or can be used by an issuer that is must satisfy the requirements below. An issuer establishing its first U.S. trading presence. typically can establish an OTCQX International quotation in 12 weeks or less. The process can be As discussed below, a foreign issuer can obtain an significantly shorter for an issuer that already has an OTCQX International quotation without becoming over-the-counter sponsored American Depositary a U.S. reporting company, meaning that it is not Receipt (“ADR”) program. required to file periodic reports with the U.S. Securities and Exchange Commission (“SEC”) under Financial Requirements the Securities Exchange Act. It also is not required At a minimum, in order to be quoted on OTCQX to comply with the Sarbanes-Oxley Act or the International, a foreign issuer must have had US$ 2 governance requirements otherwise applicable to million in total assets at the end of its most recent companies that list on The Nasdaq Stock Market annual or quarterly fiscal period and also must have or the New York Stock Exchange. This is because satisfied one of the following thresholds for its most OTCQX International is an “inter-dealer quotation recent fiscal year: (1) US$ 2 million in revenues; system” rather than a “national securities exchange” (2) US$ 1 million in net tangible assets; (3) US$ for U.S. regulatory purposes, and because OTCQX 500,000 in net income; or (4) US$ 5 million in global International companies typically qualify for an market capitalization. exemption from reporting known as Rule 12g3-2(b) under the Securities Exchange Act. (This exemption The issuer financial requirements are greater for is discussed in greater detail below.) admission to OTCQX International Premier. As is the case for lower-tier International issuers, the issuer Requirements for Admission to OTCQX must have had US$ 2 million in total assets as of International the end of its most recent annual or quarterly fiscal There are two OTCQX tiers for foreign issuers: period. In addition, it must satisfy either of two OTCQX International and OTCQX International alternative sets of standards as of the end of its most Premier. OTCQX International Premier is for recent fiscal year. It must have had revenue of US$ larger companies and requires applicants to meet 100 million, global market capitalization of US$ 500

Getting Quoted on OTCQX International | An Overview for Non-US Companies | 1 © 2012 Schulte Roth & Zabel LLP million, aggregate cash flow for the three preceding eligibility requirements, in completing the application years of US$ 100 million and minimum cash flow in and in navigating the application process generally. In each of the two preceding years of US$ 25 million. connection with initial quotation, the PAL also must Alternatively, it must have had revenue of US$ 75 million provide a letter to OTC Markets Group confirming that and global market capitalization of US$ 750 million. the issuer is in compliance with the requirements of Rule These requirements are consistent with the analogous 12g3-2(b) and other applicable OTCQX International NYSE listing standards. requirements.

Qualifying Foreign Stock Exchange Listing On an ongoing basis, the PAL provides advice An OTCQX International issuer must have been listed concerning compliance with Rule 12g3-2(b) and the on a Qualifying Foreign Stock Exchange for at least the OTCQX rules. The PAL also is required to conduct an preceding 40 days. Almost 60 markets in more than 40 annual review to confirm that the issuer is in compliance countries have been designated as Qualifying Foreign with these requirements and to provide a letter to that Stock Exchanges, as indicated on Annex A. effect to OTC Markets Group.

Availability of Specified Public Information DTC Eligible Security In order to obtain an OTCQX International quotation, In order to be quoted on OTCQX International, securities a foreign issuer must either have a class of securities must be eligible for deposit with the Depository Trust registered under Section 12(g) of the Securities Company (“DTC”). DTC acts as a clearinghouse for Exchange Act, which requires it to file periodic reports settling securities trades. Securities that are deposited with the SEC, or it must be a Rule 12g3-2(b) issuer. with DTC trade book-entry, rather than through physical This White Paper describes the OTCQX International delivery. quotation process for Rule 12g3-2(b) issuers. Ordinary shares of Canadian issuers can trade directly in Rule 12g3-2(b) is an exemption from the registration and the United States, since DTC maintains a link with CDS, ongoing reporting requirements under the Securities the Canadian securities depository. The shares of most Exchange Act. Instead, a Rule 12g3-2(b) issuer must other foreign issuers indirectly trade in the United States publish electronically — either on its website or through via DTC-eligible ADRs. ADRs are issued by a depositary an electronic information delivery system generally bank. Each ADR represents one or more shares of the available to the public in its primary trading market — issuer’s stock or a fraction of a share. certain information that it makes public to shareholders under home country requirements. This information Proprietary Priced Quotations must be published in English. The Rule 12g3-2(b) The issuer must have proprietary priced quotations exemption is discussed in greater detail below. of its securities published by a U.S. market maker in OTC Link, which is an electronic inter-dealer quotation An issuer that will be relying on the Rule 12g3-2(b) system operated by OTC Markets Group that provides exemption also must electronically post through the price quotations for securities issued by OTCQX issuers. OTC Disclosure and News Service all of the information required to be made publicly available under Rule 12g3- Inclusion in a Recognized Securities Manual 2(b) for the preceding 24 months. These materials must The issuer must provide disclosure on an ongoing basis be posted within 90 days after submission of an OTCQX in a securities manual published by Standard and Poor’s International application. or Mergent (formerly known as Moody’s). In the United States, the resale of securities in secondary market Appointment of a “PAL” transactions is regulated at both the federal and state OTCQX companies are required to have a sponsor. level. By providing disclosure in a recognized securities For an OTCQX International issuer, this is known as a manual, secondary trading is automatically permitted in Principal American Liaison (“PAL”). The PAL can be a up to 38 U.S. states. Exemptions in other states usually law firm, investment bank or ADR depositary bank. In can be obtained through a fairly simple application order to serve as a PAL, an institution must complete process, although this is not required for establishing or the PAL application and approval process if it has not maintaining an OTCQX International quotation. already done so. Schulte Roth & Zabel already has completed this process and is pre-qualified to act as a The Application Process PAL for OTCQX International issuers. In order to obtain an OTCQX International quotation, the issuer must complete an OTCQX Application for Among other things, the PAL assists the issuer in International Companies. This application requires determining whether it meets OTCQX International information concerning the issuer, the securities to

Getting Quoted on OTCQX International | An Overview for Non-US Companies | 2 © 2012 Schulte Roth & Zabel LLP be quoted and the issuer’s compliance with OTCQX singly or together, constitute the primary International eligibility requirements. The issuer also trading market for its securities. must enter into an OTCQX Agreement for International Companies. Among other things, this agreement To have a non-U.S. primary trading market, at provides for the designation of the issuer’s securities least 55 percent of the trading in the securities as OTCQX International securities and the usage by on a worldwide basis must have taken place the issuer of OTCQX issuer services, such as the OTC during the issuer’s most recently completed Disclosure and News Service. fiscal year in on or through the facilities of the securities markets in not more than two foreign Applicants also are required to pay an application fee of jurisdictions. If the issuer aggregates the trading US$ 5,000. of the securities in two foreign jurisdictions for purposes of the test, the trading for the Satisfying the Rule 12g3-2(b) Exemption securities in at least one of the two foreign A foreign issuer generally is required to register a jurisdictions must exceed the U.S. trading for class of securities with the SEC under the Securities the securities. There is no minimum time period Exchange Act when it has over US$ 10 million in for which securities need to be traded in the assets and the class is held by more than (1) 2,000 primary trading market to qualify for the Rule shareholders of record or 500 shareholders of record 12g3-2(b) exemption. Therefore, an IPO issuer who are not accredited investors; and (2) 300 U.S. can satisfy the exemption, although an OTCQX residents. Securities Exchange Act registration requires International issuer must have a pre-existing the issuer to file a fairly comprehensive disclosure listing on a Qualifying Foreign Stock Exchange, document containing specified business and financial as discussed above. information about the issuer. Thereafter, the issuer also must file periodic reports under the Securities Exchange • The issuer must publish, in English, information Act on an ongoing basis. In addition, it must comply that, since the first day of its most recently with certain aspects of Sarbanes-Oxley. completed fiscal year, it has:

An issuer that qualifies for the Rule 12g3-2(b) exemption Made public or been required to make o is not required to comply with these requirements. public pursuant to the laws of its country of The issuer instead can make certain home country incorporation, organization or domicile; disclosures available to U.S. investors. The exemption is self-executing; an issuer that qualifies for the exemption Filed or been required to file with the o is entitled to rely on it automatically, without making principal non-U.S. stock exchange on which any filing with or receiving prior approval from the SEC. its securities are traded and which has been made public by that exchange; and In order to satisfy the Rule 12g3-2(b) exemption, the issuer must meet four requirements: Distributed or been required to distribute to o its security holders. • It must be a “foreign private issuer,” which is defined as a non-governmental issuer that is Rule 12g3-2(b) only requires materials to be published in organized under the laws of a country other English to the extent material to an investment decision, than the United States, unless: (1) U.S. residents such as information concerning the following: own more than 50 percent of its outstanding voting securities; and (2) either (a) the majority • Results of operations or financial condition; of its executive officers or directors are U.S. citizens or residents or (b) more than 50 • Changes in business; percent of its assets are located in the United States or (c) its business is administered • Acquisitions or dispositions of assets; principally in the United States. • The issuance, redemption or acquisition of • The issuer is not a Securities Exchange Act securities; registrant. • Changes in management or control; • The issuer maintains a listing of its securities on one or more non-U.S. exchanges that, either • The granting of options or payment of compensation to directors or officers; and

Getting Quoted on OTCQX International | An Overview for Non-US Companies | 3 © 2012 Schulte Roth & Zabel LLP • Transactions with directors, officers or principal U.S. federal and state securities laws, including Rule 12g3- security holders. 2(b), and must post its Rule 12g3-2(b) information through the OTC Disclosure and News Service. Although there is no “bright-line” test for determining when information is material, information generally is The quoted issuer also must continue to retain the considered to be material to an investment decision services of a PAL, and, on an annual basis, it must if there is a substantial likelihood that a reasonable provide a letter to the PAL confirming that it continues investor would consider it important in deciding to satisfy the requirements of the applicable OTCQX whether to purchase or sell a security. International tier, that it is in compliance with Rule 12g3-2(b) and that it has posted its Rule 12g3-2(b) In some cases, the issuer may publish summaries of its information through the OTC Disclosure and News Rule 12g3-2(b) information. At a minimum, the issuer is Service. On an annual basis, the PAL also must furnish a required to publish English translations of the following compliance letter relating to the issuer to OTC Markets to the extent material: Group.

• Its annual report, including annual financial There is an annual fee of US$ 15,000 to maintain an statements; OTCQX International quotation.

• Its interim reports that include financial Other Common Topics of Interest statements; Foreign issuers considering a quotation in the United States often also ask about the following topics: • Its press releases; and Raising Capital in the United States • All other communications and documents Rule 12g3-2(b) issuers often wish to raise capital in distributed directly to the holders of securities the United States, typically as a tranche in a primarily of the class to which the Rule 12g3-2(b) non-U.S. offering. A Rule 12g3-2(b) issuer can privately exemption relates. raise capital in the United States without triggering the transaction registration requirements of the Securities Rule 12g3-2(b) materials must be published on the Act or the ongoing reporting requirements of the issuer’s website or through an electronic information Securities Exchange Act. In some cases, the U.S. tranche delivery system generally available to the public in its is structured as an exempt Rule 144A offering, in which primary trading market. Documents that are published investors are limited to qualified institutional buyers, pursuant to Rule 12g3-2(b) are not treated as having which generally are institutional investors with US$ 100 been “filed” for purposes of the Securities Exchange million or more in assets under management. The Rule Act. Under Section 18 of the Securities Exchange Act, 144A exemption requires the issuer to make available an issuer may have liability for false and misleading upon request to investors and prospective purchasers statements contained in its Securities Exchange Act specified reasonably current information about the filings. Because Rule 12g3-2(b) documents are not filed, issuer. The information published under Rule 12g3-2(b) they are not subject to Section 18 liability. However, satisfies this requirement. as discussed below, under certain circumstances, Rule 12g3-2(b) issuers still may be held liable for fraudulent Although outside of the scope of this White Paper and statements contained in their Rule 12g3-2(b) disclosure therefore not discussed herein, there are other U.S. under Section 10(b) of the Securities Exchange Act and private placement exemptions that can be used while Rule 10b-5 thereunder. still maintaining a Rule 12g3-2(b) exemption. In addition, a Rule 12g3-2(b) issuer always has the flexibility to Maintaining an OTCQX International Quotation conduct a public offering in the United States, although Like other quotation platforms, OTCQX International that would trigger the registration and reporting requires issuers to satisfy various ongoing quantitative requirements of the Securities Act and the Securities and qualitative maintenance requirements. Exchange Act.

An OTCQX International issuer must continue to satisfy Terminating an OTCQX Quotation the financial standards, proprietary priced quotation An OTCQX International company may withdraw its and Qualifying Foreign Stock Exchange requirements securities from OTCQX quotation at any time, upon 24 applicable to an initial quotation. It also must comply with hours written notice to OTC Markets Group. An issuer home country securities laws, as well as any applicable can terminate an OTCQX International quotation in

Getting Quoted on OTCQX International | An Overview for Non-US Companies | 4 © 2012 Schulte Roth & Zabel LLP connection with the listing of the class of securities In an important 2010 U.S. Supreme Court case that on The Nasdaq Stock Market or the New York Stock overturned almost 40 years of judicial interpretations, Exchange. Alternatively, the issuer can downgrade to a the court held that Section 10(b) applied only lower-tier quotation. to transactions in securities listed on a domestic stock exchange or domestic transactions in other Exposure to U.S. Securities Fraud Claims securities. The effect of this case was to scale back the Although Rule 12g3-2(b) issuers are not subject to extraterritorial application of the anti-fraud provisions of all of the liability provisions of the federal securities the federal securities laws. laws because they are not Securities Exchange Act registrants, they are subject to Section 10(b) of the In early 2012, the Second Circuit Court of Appeals, Securities Exchange Act and Rule 10b-5 thereunder, an important U.S. court for federal securities law which prohibit the use of manipulative and deceptive jurisprudence, addressed what constitutes a domestic practices in securities transactions. Foreign private transaction in securities not listed on a U.S. exchange. issuers establishing a U.S. listing or quotation historically Consistent with the earlier Supreme Court case, the have been concerned about potential exposure to fraud Court of Appeals concluded that a domestic transaction claims brought under the U.S. federal securities laws requires either that the parties become irrevocably by both U.S. and foreign plaintiffs, irrespective of the bound to complete the transaction in the United States location of the transactions in the securities. or that title to the securities at issue be transferred in the United States.

Authored by Michael R. Littenberg, James Nicoll and Steven Vaccarello.

Michael R. Littenberg James Nicoll Partner Special Counsel +1 212.756.2524 +1 212.756.2497 [email protected] [email protected] Biography Biography

For further information concerning establishing an OTCQX International quotation, a quotation or listing Steven Vaccarello on another U.S. trading market or any of the topics Associate discussed in this White Paper, please contact: +1 212.756.2521 [email protected] Michael R. Littenberg Biography +1 212.756.2524 [email protected]

SRZ’s Capital Markets Practice

SRZ offers a full-service capital markets practice that provides transactional and ongoing advice through all stages for companies of all sizes. With extensive depth of experience and senior-level attention, we represent U.S. and non-U.S. issuers, investment banks and investors in connection with U.S. and global capital markets transactions, including SEC registered, Regulation D, Rule 144A and Regulation S offerings. Our expertise spans an extensive range of equity and debt products, including initial public offerings, investment grade and non- investment grade debt, SPACs, BDCs and other permanent capital vehicles, trust preferred securities, preferred stock, equity-linked securities, PIPEs, CMPOs, ATMs and registered direct offerings.

In addition to our transactional capital markets practice, we counsel public companies, their boards, board committees, special committees, executive officers and investors in connection with ongoing compliance under the U.S. securities laws, including under Dodd-Frank and Sarbanes-Oxley, and with exchange requirements, as well as on governance and executive compensation matters. We closely monitor and advise our public company clients on rule-making initiatives and evolving best practices.

We have experience in every major industry, including apparel, automotive, aviation, biotechnology, broadcasting, business services, computer hardware, consumer services, defense, energy, entertainment, financial services, food and beverage, government services, information technology, insurance, manufacturing, media, natural resources, real estate, restaurant and hospitality, retailing, shipping and logistics, software, technology and telecommunications.

Our public company clients range from well-known large-cap companies to growing micro-cap companies. We are able to leverage our experience to efficiently advise companies of any size. In addition, we have been pre- cleared by the OTC Markets Group to act as an Attorney Designated Advisor for Disclosure/Principal American Liaison (DAD/PAL) for OTCQX companies.

We frequently publish Alerts and hold seminars on developments affecting public companies. To join our Public Companies mailing list, please visit our subscriptions page.

Annex A | Qualifying Foreign Stock Exchanges

Argentina Buenos Aires Stock Exchange Australia ASX — Australian Securities Exchange Vienna Stock Exchange (Wiener Börse AG) — Official Market Austria Vienna Stock Exchange (Wiener Börse AG) — Second Regulated Market Alternext Brussels Belgium Euronext Brussels Brazil BM&FBovespa Toronto Stock Exchange Canada TSX Venture Exchange Chile Santiago Stock Exchange Hong Kong Stock Exchange — Main Board China Shanghai Stock Exchange Shenzhen Stock Exchange Colombia Bogota Stock Exchange Denmark OMX Nordic Exchange Copenhagen Egypt Egyptian Exchange Finland OMX Nordic Exchange Helsinki Alternext Paris France Euronext Paris Frankfurt Stock Exchange — Regulated Market — Prime Germany Frankfurt Stock Exchange — Regulated Market — General Greece Athens Exchange Hungary Budapest Stock Exchange Iceland OMX Nordic Exchange Iceland India Mumbai/Bombay Stock Exchange Ireland Irish Stock Exchange Israel Tel Aviv Stock Exchange (TASE) Italy Borsa Italiana S.p.A

Tokyo Stock Exchange JASDAQ Securities Exchange — Standard Japan Osaka Securities Exchange — 1st Section Osaka Securities Exchange — 2nd Section Korea Stock Exchange (KSE) — Main Board Korea Korea Stock Exchange (KSE) — KOSDAQ Malaysia Malaysian Stock Exchange — Main Board Mexico Bolsa Mexicana de Valores (Mexican Stock Exchange) Alternext Amsterdam Netherlands Euronext Amsterdam New Zealand New Zealand Exchange Norway Oslo Bors (Oslo Stock Exchange) Peru Bolsa de Valores de Lima (Lima Stock Exchange) Philippines Philippine Stock Exchange Poland Warsaw Stock Exchange — Main Board Portugal Euronext Lisbon MICEX — Moscow Interbank Currency Exchange Russia RTS — Russian Trading System Stock Exchange Singapore Singapore Exchange South Africa Johannesburg Stock Exchange Madrid Stock Exchange Spain Continuous Market Sweden OMX Nordic Exchange Stockholm Switzerland SIX Swiss Exchange Thailand Stock Exchange of Thailand (SET) Turkey Istanbul Stock Exchange — National Market United Arab Emirates Nasdaq Dubai London Stock Exchange (LSE) — Main Board United Kingdom AIM Market Venezuela Caracas Stock Exchange

OTC Markets Group may add other non-U.S. exchanges to this list upon request by an issuer.

Getting Quoted on OTCQX International | An Overview for Non-US Companies | 7 © 2012 Schulte Roth & Zabel LLP Schulte Roth & Zabel LLP Schulte Roth & Zabel LLP Schulte Roth & Zabel International LLP New York Washington, DC London 919 Third Avenue 1152 Fifteenth Street, NW, Suite 850 Heathcoat House, 20 Savile Row New York, NY 10022 Washington, DC 20005 London W1S 3PR +1 212.756.2000 +1 202.729.7470 +44 (0) 20 7081 8000 +1 212.593.5955 fax +1 202.730.4520 fax +44 (0) 20 7081 8010 fax www.srz.com

This information has been prepared by Schulte Roth & Zabel LLP (“SRZ”) for general informational purposes only. It does not constitute legal advice, and is presented without any representation or warranty as to its accuracy, completeness or timeliness. Transmission or receipt of this information does not create an attorney-client relationship with SRZ. Electronic mail or other communications with SRZ cannot be guaranteed to be confidential and will not (without SRZ agreement) create an attorney-client relationship with SRZ. Parties seeking advice should consult with legal counsel familiar with their particular circumstances. The contents of these materials may constitute attorney advertising under the regulations of various jurisdictions.